Social cost is the sum of all the individual costs. That is, it’s the cost to me plus the cost to you plus….. etc., summing over 300 million people. In doing the summation, we can’t omit whole groups of folks. Although this may come as a surprise to some, doctors really are people! So are nurses. So are hospital personnel. Squeezing the incomes of providers shifts costs, but it doesn’t lower them. It makes patients better off (in the short run) and providers worse off. But that does not lower cost for society as a whole.
As Gregory Mankiw explained in a recent New York Times editorial, if we want to shift costs, we do not need monopsonistic buying power. We could simply impose a tax on all the providers and use the proceeds to subsidize the health care purchases of patients. Good for patients and bad for doctors, perhaps. But since the gains and losses cancel out, the benefits for society as a whole are nil.
When reformers talk about using government to lower costs in health care, just remember that the costs will be lowered for some, but raised significantly for others – and overall, we won’t be any better off for it.